I’ll save the epiphany for the end.

QE can work when the Fed is the buyer of last resort and then interest rates slowly go down. The market breathes a sigh of relief and the country can go about their business. But that’s not what has happened in this country, especially since Q1 2020. By no means would I ever judge what we did at the time attempting to deal with the pandemic. But, we must understand the past, navigate the present and also have an eye on the future.

Real GDP fell $1.7T in Q2 2020, the first quarter of the pandemic. And nominal GDP lost $2T.

Here’s the short and simple of our response (I’m not telling you anything (yet) you didn’t already know):

Lower interest rates to 0%.

Borrow $7T, $5T was lent by the Fed.

Give the country just over $6T.


Government debt up $7T.

Fed Assets up $5T (and at a high basis).

Money Supply up $6T.

We didn’t let the real economy suffer a majority of the loss like we did in the GFC, (Real economy lost $700B, nominally we only lost $600B).

We didn’t just fill in the real losses with nominal money like we did in Q1 2001 and Q3 2001 (dot.com bust & 9/11), $50B ea. –Proud Keynesian Moment.

We threw $6T at a $1.7T problem that we didn’t fully understand.

GDP is 16% higher after a pandemic than before a pandemic and we have an inflation problem.

That’s easy, just do QT and soak up the excess liquidity…

Epiphany: The Inflation has already happened and it’s costly.

Is the entirety of the problem yet reflected in prices (Powell’s White Whale)? Who bears or continues to bear the cost? Where is the new price point and who’s over exposed if the recent price point was too high?

We are monitoring and navigating this environment for our clients. Contact us to discuss working with Alhambra.